Investment Highlights

• We maintain our HOLD call on Axiata Group (Axiata) with unchanged forecasts and fair value of RM3.86/share, which incorporates a 25% holding company discount to our sum-ofparts-based fair value of RM5.14/share. This implies an FY19F EV/EBITDA of 5x, 2SDs below its 2-year average of 7x.

• Following our update last week, Axiata has received a letter from Nepal’s Large Taxpayers Office (LTO) confirming that the outstanding capital gains tax (CGT) of NPR39bil (RM1.5bil) should be deposited by 22 April 2019.

• Recall that Nepal’s Supreme Court has ordered that the CGT arising from the sale of an 80% equity stake in Ncell for US$1.4bil by TeliaSonera Norway Nepal Holdings in December 2015 should be borne by Ncell and the buyer Axiata, following a public interest litigation filed by a group of Nepali nationals.

• According to the Himalayan Times, the CGT payable is NPR62.6bil, of which Axiata has already paid instalments of NPR23.3bil, including late interest charges.

• As such, the final balance CGT payable will be lower by NPR6bil (RM223mil) vs our earlier assumption of NPR45bil (RM1.7bil) which we had included in our SOP. However, revising the assumption does not substantively change our SOP.

• The letter does not indicate that Axiata needs to pay the entire NPR63bil first before deducting the instalments upon a formal application, as earlier reported by the media. Hence, we estimate that this could raise Axiata’s FY19F net debt/EBITDA from 1.6x to only 1.7x, vs. our earlier estimate of 1.8x.

• If the group were to make a provision this year, Axiata’s FY19F net profit of RM1.3bil could reverse to a loss of RM200mil.

• While we maintain the view that the court verdict is unreasonable, Axiata’s regulatory risk profile has worsened as the group may not have any further legal recourse except pursue an uncertain claim from Telia.

• Additionally, the Supreme Court has ordered that the distribution of dividends and any sale of Ncell shares should not be granted until the tax obligation is satisfied.

• Even though Axiata currently trades at a bargain FY19F EV/EBITDA of 5x vs. Maxis’ 12x, the group’s deteriorating overseas risk profile amid intense mobile completion both locally and regionally could limit any medium-term share price upside.

• Additionally, the government’s intention to reduce Khazanah Nasional’s holdings in GLC-linked companies currently casts shadows of a share overhang.

Source: AmInvest Research - 18 Apr 2019